Credit Reports Prior To Closing

Written By: Bonnie Wilt-Hild, Op-Ed Writer

Just when we think we have a handle on documentation requirements where mortgage underwriting is concerned, they go and change the rules and further complicate our lives. The past year has found us embracing due diligence in underwriting with all of the gusto we could muster, seriously limiting the use of documentation waivers provided by AUS as well as embracing all of the old school methodology of underwriting and still, beginning June 1, 2010 we will scrutinize our borrowers further.

Is that even possible you ask and the answer is yes and not only is it possible but highly probable. Under Fannie Mae’s loan quality initiative most lenders (including the one that I am employed by) will begin requiring credit reports to be pulled for a second time during the loan process, this time however, within 24 hours of loan closing. The reasoning behind the rule stems from defaulted loans by borrowers who would acquire credit once the initial credit was pulled for the mortgage application or loan approval was issued. These individuals may have obtained credit to shop for furniture or other needed household items or even a new car for their new garage thereby increasing their monthly beyond ratio tolerance. From a documentation and loan approval standpoint, it is every loan officer’s nightmare, however, from and underwriting standpoint I think it’s a great idea.

Looking at it from a loan officer’s perspective can be more than daunting. Imagine your borrower’s credit scores are border line and something as simple as one more credit inquiry can drop them below the 620 level needed for AUS approval. One day you have a mortgage commitment subject to receipt of a satisfactory pre-closing credit report and the next day upon pulling the same you have a mortgage credit reject. I can’t even imagine the business partner relationships that will be ruined over this. However, from an underwriting standpoint it protects us in more ways than one. From a future investor audit standpoint we no longer have to worry that our investors may uncover some undisclosed debt that closed prior to our transaction that resulted in excessive ratio’s and ultimately loan repurchase. Additionally, it will allow us to determine if the borrower’s were being truthful when they provided their inquiry explanation as well as allow us to examine several other things like increased balances on credit cards and credit lines as well as to determine if any newly recorded liens or second mortgages exist.

As with all things, mortgage professionals will adjust however, I strongly suggest that the loan originators explain to their borrowers very carefully that they must not use their credit cards or acquire new credit prior to loan closing as it could result in a mortgage credit reject on a loan that was previously approved. Not good news on the day before loan closing. Further information on the initiative may be found on Fannie’s website. As always happy underwriting.

About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".

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